Universität zu Köln

Schabert, Andreas and van Wijnbergen, Sweder J. G. (2014). Sovereign Default and the Stability of Inflation-Targeting Regimes. IMF Econ. Rev., 62 (2). S. 261 - 288. BASINGSTOKE: PALGRAVE MACMILLAN LTD. ISSN 2041-417X

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Abstract

We analyze the impact of interactions between monetary and fiscal policy on macroeconomic stability. We find that in the presence of sovereign default, macroeconomic stability requires monetary policy to be passive if the feedback from debt surprises back to the primary surplus is too weak. An active monetary policy can however only contribute to the stabilization inflation and output, if the primary surplus is increasing in debt with a slope that increases with the default probability. The results are relevant for the design of fiscal and monetary policy in emerging markets where sovereign credibility is not well established. Recent debt developments in Western Europe and in the United States suggest these results may become relevant for more mature financial markets too once the current low inflation period is over.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Schabert, Andreas UNSPECIFIED UNSPECIFIED UNSPECIFIED van Wijnbergen, Sweder J. G. UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-449835
DOI:	10.1057/imfer.2014.8
Journal or Publication Title:	IMF Econ. Rev.
Volume:	62
Number:	2
Page Range:	S. 261 - 288
Date:	2014
Publisher:	PALGRAVE MACMILLAN LTD
Place of Publication:	BASINGSTOKE
ISSN:	2041-417X
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language POLICY; MONETARY; DEBT Multiple languages Business, Finance; Economics Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/44983